The opinion of the court was delivered by: Gold, S., U.S.M.J.
On June 4, 2008, I entered an order granting the parties' motion for preliminary approval of a class action settlement and setting a fairness hearing for October 15, 2008. Shortly before the hearing, defendants advised the court that on September 25, 2008, the Office of Thrift Supervision, the federal agency responsible for regulating banks such as defendant Washington Mutual Bank ("WMB"), appointed the Federal Deposit Insurance Corporation ("FDIC") as receiver for WMB for liquidation purposes pursuant to 12 U.S.C. § 1821(c)(6)(B). Docket Entry 153.*fn1 Accordingly, I granted the FDIC's motion to substitute for WMB as a party in these actions and granted the FDIC's motion for a stay pursuant to 12 U.S.C. § 1821(d)(12). See Order dated Oct. 15, 2008.
Plaintiffs' counsel and the FDIC subsequently reached a settlement agreement.*fn2 I have today entered an order approving the parties' Stipulation of Settlement and Dismissal ("Stipulation"), Docket Entry 185. The only issue remaining before me is plaintiffs' application for an award of attorney's fees and costs totaling $2,109,436.12, comprised of $2,000,000 in fees and $109,436.12 in costs.*fn3 Docket Entries 158-60, 186. This memorandum sets forth my reasons for awarding $1,288,436.12 in fees and costs.
Courts in the Second Circuit determine the reasonableness of any fee award either by calculating the fee award as a percentage of the settlement or by calculating a "presumptively reasonable fee" by multiplying the hours reasonably expended by a reasonable hourly rate, Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, 522 F.3d 182, 183 (2d Cir. 2008).*fn4 Goldberger v. Integrated Res. Inc., 209 F.3d 43, 50 (2d Cir. 2000) (identifying various factors for courts to consider when calculating attorney's fees for class counsel, including the relationship between the amount of fees and the settlement amount).
Here, the total in fees and costs sought by counsel, $2,109,436.12, is a significant percentage of the settlement funds to be distributed to the class. At the time that the parties entered into the original settlement, WMB had already paid a total of $4,093,990 in refunds to approximately 818,700 borrowers. Settlement Agreement ¶ V.A.1, Weprin Decl. Ex. 1, Docket Entry 160. During the time permitted for filing claims pursuant to the settlement, approximately 69,327 individuals filed timely claims seeking additional refunds as set forth in the settlement agreement. Stipulation p.1. The maximum amount that any claimant may be entitled to is $30. Settlement Agreement ¶ V.B. Valuing all claims at the maximum entitlement, and assuming all submitted claims are valid, a total of $2,079,810 may be paid to the claimants. This most likely overstates the actual total, however, because not all claims will be deemed valid and not all claimants will receive the maximum refund. See Pl. Mem. of L. in Support of Pl. Mot. for Final Approval of Class Action Settlement ("Pl. Mem."), Docket Entry 157, at 10 n.7 (noting that the original claims administrator concluded that over 8,000 claims were invalid); Settlement Agreement ¶ V.B (providing for varying refund amounts ranging from $2 to $30), ¶ V.E (noting that approximately 20 claimants would be entitled to only $2).
Assuming for the moment that the maximum possible recovery was obtained, and adding to it WMB's prior payment, the settlement could be valued at a total of as much as $6,173,800.*fn5
Adding the fees and costs sought by counsel yields a total settlement fund of $8,282,236.12. Class counsel's application for fees and costs thus seeks approximately 25% of the settlement's maximum value; obviously, the percentage would be higher if, as is likely, an amount less than an additional $2,079,810 is paid to the claimants.
An award of 25% of a settlement fund is within the range found reasonable by many courts, but courts have also warned against using 25% as a "benchmark" and frequently awarded smaller percentages. See Goldberger, 209 F.3d at 51-52 (recognizing that many courts award fees in the range of 25 to 30% of a settlement fund, but criticizing the use of a 25% benchmark as one that "could easily lead to routine windfalls where the recovered fund runs into the multi-millions," and affirming an attorney's fee award of 4% of the settlement); Park v. The Thomson Corp., 2008 WL 4684232, at *7 (S.D.N.Y. Oct. 22, 2008) (stating that a fee award of 24% was within the range of recent fee awards, but on the high end of that range, and reducing award to 15% of the settlement); In re Twinlab Corp. Sec. Litig., 187 F. Supp. 2d 80, 87 (E.D.N.Y. 2002) (noting "the emerging trend within the Second Circuit of awarding attorneys considerably less than 30% of common funds in securities class actions" and reducing counsel's fee application from 331/3% to 12%); In re Dreyfus Aggressive Growth Mut. Fund Litig., 2001 WL 709262, at *4 (S.D.N.Y. June 22, 2001) (concluding that an attorney's fee award of 30% of the settlement was "at the far end of the reasonableness spectrum" in a securities class action and reducing the award to 15%); but see In re Telik, Inc. Sec. Litig., 576 F. Supp. 2d 570, 587 and n.8 (S.D.N.Y. Sept. 10, 2008) (collecting cases approving attorney's fees in the range of 30 to 331/3% of a settlement).
The remaining Goldberger factors, 209 F.3d at 50, also support a reduction in the amount of plaintiffs' fee request. Although the "magnitude and complexities" of this litigation were substantial, this case was not as complicated as some securities and antitrust matters. Moreover, it seems the litigation risk was not particularly high. As noted above, WMB agreed to make refunds of $4,093,990 to approximately 818,700 borrowers even before a settlement agreement was reached, suggesting that plaintiffs' liability case was clear and compelling. This implies that the risk to plaintiffs of recovering zero was small, and that the risk that counsel would recover no fees at all was insubstantial.
In addition, although the quality of the representation was high, plaintiffs' most valuable claims were effectively dismissed as a result of the Second Circuit's decision in Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49 (2d Cir. 2004). Weprin Decl. ¶ 21. According to the Second Circuit's decision, class counsel here chose to bring claims to which the controlling statute "clearly and unambiguously does not extend." Kruse, 383 F.3d at 56.
Goldberger also directs courts to take into account public policy considerations. The circumstances of this case present a compelling public policy concern. At the time the class notice was sent out, WMB was apparently solvent, and class members were led to believe that they would receive the full amount of their valid claims under the settlement agreement. Since that time, WMB has been placed into receivership, and class members will now be awarded Receivership certificates in lieu of cash payments. Stipulation ¶ 11. As the court understands it, the value of these certificates will depend upon the amount of the assets available to satisfy claims and the amount of the claims made against those assets; the possibility that plaintiffs will be paid less than the face value of their valid claims -- a possibility not articulated in the class notice or otherwise seriously contemplated prior to the receiver's appointment -- now looms large. Assuming the assets will not be sufficient to pay all creditors full value, the amount of class counsel's claim against the limited assets marshaled by the receiver will affect the sum available to other creditors, including class members.
The record contains no information about whether the amounts at issue in this case are significant relative to the amounts involved in the receivership as a whole -- WMB's total assets and liabilities -- or whether the claims in this case will have an appreciable impact on the value of Receivership certificates. I assume the impact would be minimal. However, the appearance created by the competition over a limited fund between class members and class counsel suggests that counsel's fee request be given close scrutiny, particularly under the unique circumstances here, which changed after the class notice was distributed. My concerns in this regard are heightened by virtue of the contrast between the very small recoveries class members will enjoy and the large amount of fees counsel seek to recover. Cf. Dreyfus Aggressive Growth Mut. Fund Litig., 2001 WL 709262, at *4 n.11 (noting that often, "the net result of [securities fraud class actions] is that attorneys collect fortunes, investors recover pennies, and businesses are devastated").*fn6
Turning my attention to the presumptively reasonable fee as a cross-check further supports the conclusion that a reduction in the amount of fees counsel seeks is warranted. Plaintiffs' attorneys calculate the presumptively reasonable fee as $1,499,009.25 by multiplying the 3,468.48 hours they spent litigating these actions over six years by their various hourly rates. Weprin Decl. ¶ 145. Although the total number of hours expended appears reasonable in light of the length and complexity of this action, some of those hours were spent developing and litigating the "overcharge" claims that were effectively dismissed by the Second Circuit's decision in Kruse. Id. ¶¶ 18-21.*fn7 Generally, a court should not award fees related to time spent on unsuccessful claims. Hensley v. Eckerhart, 461 U.S. 424, 434-37, 103 S.Ct. 1933, 1940-41 (1983) (recognizing the discretionary nature of awarding fees on unsuccessful claims but permitting such an award where the unsuccessful claims were intertwined with successful claims, non-frivolous, and made in good faith).
Moreover, the hourly rates charged by counsel are high. Counsel seek reimbursement at hourly rates ranging from $250 to $800, with an average hourly rate of $432.18.*fn8 Weprin Decl. ¶ 148. For example, Barry A. Weprin of Milberg LLP, lead counsel on this action, expended approximately 338.50 hours at a rate of $735 an hour, for a total fee of $248,797.50. Id. Ex. 12. In ...